1966 (2) TMI 5 - HC - Income Tax

Reopening of the assessment of the assessee for this assessment year by issuing notice under s. 34(1)(a) - action taken under s. 34(1)(a) was valid

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer, Porbandar, under section 34(1)(a).
2. Validity of the proceedings under section 34(1)(a).
3. Maintainability of an appeal against the levy of penal interest.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer, Porbandar, under section 34(1)(a):

The assessee contended that the jurisdiction to assess under section 34(1)(a) was with the Income-tax Officer, Circle-I, Ward A, Ahmedabad, as per entry 77 in the notification dated 1st July, 1952, issued by the Central Board of Revenue. The revenue, however, argued that it was governed by entry 78-C, making the Income-tax Officer, Porbandar, the competent authority. The Commissioner of Income-tax upheld the revenue's contention, and the Tribunal confirmed this, stating that the objection was essentially about the place of assessment and was covered by section 64(3). Since the Commissioner determined the question under that section, the determination was binding and could not be questioned before the Tribunal. This view was consistent with the court's decision in Dhrangadhra Trading Company Private Ltd. v. Commissioner of Income-tax, leading to the conclusion that the jurisdiction of the Income-tax Officer, Porbandar, was valid.

2. Validity of the proceedings under section 34(1)(a):

The third question raised the point regarding the validity of the proceedings under section 34(1)(a). For the Income-tax Officer to have jurisdiction under section 34(1)(a), two conditions must be satisfied: (i) the Income-tax Officer must have reason to believe that income has escaped assessment, and (ii) such escapement must be due to the assessee's omission or failure to disclose fully and truly all material facts necessary for the assessment. The court noted that no dispute was raised about the first condition, so the focus was on the second condition.

The court examined the facts disclosed by the assessee during the original assessments for the years 1947-48 and 1948-49. The assessee had disclosed that it had no business in British India, maintained a current account with the Bank of India Ltd., Bombay, for recovering dues from British Indian merchants, and received interest from Messrs. Shamji Kalidas & Company, with tax deducted at the maximum rate. The Tribunal had found that there was an omission or failure to disclose material facts, but the court noted that the Tribunal did not distinguish between the two accounts and failed to pinpoint any specific primary relevant fact that was not disclosed.

The court emphasized that the duty of the assessee was to disclose all primary relevant facts, not to draw inferences or present the correct principle of chargeability. The court found that the fact of receipt of sale proceeds in the account with Messrs. Shamji Kalidas & Company was not a primary relevant fact material to the assessment, as the Income-tax Officer had already taken the view that receipt of sale proceeds in British India did not attract chargeability. Therefore, non-disclosure of this fact did not justify reopening the assessments under section 34(1)(a).

For the assessment year 1949-50, the court noted that the factual position was similar to the earlier years, and the same reasoning applied. The court concluded that there was no non-disclosure of any material fact, and the Income-tax Officer had no jurisdiction to reopen the assessments under section 34(1)(a).

3. Maintainability of an appeal against the levy of penal interest:

The Tribunal held that no appeal lay against the levy of penal interest to the Appellate Assistant Commissioner and consequently to the Tribunal. Since the court found that the action of the Income-tax Officer in initiating proceedings for reassessment under section 34(1)(a) was invalid, the levy of penal interest must also fall along with the reassessment. Therefore, Question No. 4 regarding the maintainability of an appeal against the levy of penal interest became unnecessary to consider.

Conclusion:
- Questions Nos. 1 and 2 were not pressed.
- Question No. 3 was answered in the negative, indicating that the proceedings under section 34(1)(a) were invalid.
- Question No. 4 was deemed unnecessary to consider due to the invalidity of the reassessment proceedings.

The Commissioner was directed to pay the costs of the reference to the assessee.